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Merlin Delays Hotel Portfolio Sale Until June 2016

23 December 2015 – El Economista

Merlin Properties is certain that it wants to divest the hotel portfolio that it inherited from Testa, the former real estate subsidiary of Sacyr, which it acquired in June for €1,800 million, from its balance sheet within five years. Nevertheless, the company expects that it will not begin the sales process until the second half of 2016. The reason for its decision to delay this divestment until June is a question of regulations.

The aim of the Socimi was to use the money from the sale to reduce its indebtedness, which amounted to €2,939 million at the end of the third quarter, and to undertake new investments. The problem is that according to the rules that apply to Socimis, Merlin must allocate at least 80% of its profit from the sale as extraordinary dividend, which does not fit with the company’s plans.

“We are analysing other legal options to avoid this. Our analysis and its implementation will take some time”, explain sources at the group.

One of the possible options includes the launch of a new Socimi that will be dedicated solely to the hotel business; another includes the creation of a company containing all of these assets, which would then be sold and, in that way, the hotels would be sold all together, without the need to allocate 80% of the profits to shareholder remuneration.

According to Fernando Lacedena, CEO of Testa, the Socimi is focusing on the integration of both companies at the moment, “that is our primary objective”.

In addition, Merlin has just completed the refinancing of €1,700 million of Testa’s debt with a group of ten entities and it is preparing itself for a €850 million bond issue.

Sale of Testa Residencial

The Socimi, which has just joined the Ibex 35, has also launched its divestment of Testa Residencial. In this case, the tax considerations do not apply in the same way, since the 1,519 homes and 26 retail premises that it has put up for sale all sit within a separate company.

“The residential business is very ordered within Testa, it all sits within a single entity and therefore, the operation does not involve the movement of any assets or the transfer of any shares”, says Lacadena, who says that “this makes the transaction a lot easier, since it does not involve the partial divestment of some assets to one investor and other assets to another investor”.

The completion of this operation, which could amount to €280 million and is known as Project Crete, was scheduled for this year, however, even though “there has been lots of interest”, Lacadena explains that it may be delayed until the beginning of next year.

The Director explains that the price is not a critical element in this sale, however, like in any process, there are certain details that must be agreed. In this case, the company has an associated debt, which amounts to €100 million and therefore, “we need the financial institutions to be open to changing the ownership of that debt (before we can proceed)”.

Moreover, the sale of Testa Residencial will involve the transfer of the professional team that manages the business. In total, the workforce comprises around 40 people, between the Servicers and the Residential team. In this sense, the Director was keen to highlight that the integration of the two companies will not result in any redundancies.

Original story: El Economista (by Alba Brualla and Javier Mesones)

Translation: Carmel Drake